Wild Fires and Disaster Recovery

Welcome to Risky Business Commercial Insurance with Butler Byers. This is Paul Martin, the host of this show, and the business commentator on CKOM. You hear me on an ongoing basis. Joining me as always is Colin Rook, the Commercial Risk Reduction Specialist with Butler Byers. Colin, I think we’ve just got to look at what’s going on in the news right now. The coverage is just wildfire, wildfire, wildfire. I mean, we’re talking massive disasters, everything from actual losses to the fire, but to air quality to you name it. I mean, this is a story that’s really dominating the coverage these days.

I’m wondering, anytime you talk disaster, you’ve got to talk insurance. There’s implications for this. So walk me through, what does this mean? I mean, first of all, if you have a cottage or your house burns down due to a forest fire, I mean, what’s the coverage there? Or after that, if we’re going to end up, probably there’ll be some big claims that’ll go here and that’s bound to affect premiums over the course of time. Just when you see and hear these kinds of stories, what bells go off in your head?

Yeah, it’s funny. If you’re in the insurance industry, you’re inundated with natural disaster or claim information, and I bet in the last month, two out of every three articles from various insurance related sources are all centered around the fires. Certainly there’s an insurance twist. All the time, the impact on future reinsurance, the impact on profitability among Canadian insurers, how many people are forced to flee, what role government will play, where does the coverage begin, where does the coverage end. It’s funny, you asked about what coverage is available, for example, if the cottage burns. Well, it’s hard to answer. It depends on what you bought, how many others burned, what province, what area. So it’s a pretty situational type question.

It’s like asking how long is a piece of string.

Exactly. And depending on the magnitude, eventually the insurance, if it’s a true plot loss, insurance companies, they’re not required to rebuild whole cities, as an example. It’s just not possible to do. So that’s where you’ve got both provincial and the federal government involved, but the more you read about these fires and the impact they’re having, it just brings you back to an original topic from this show and something that we revisited, but it’s always important, it’s always something that needs to be top of mind is as a business owner, I mean even for your own household, but I mean, as a business owner, do you have a disaster recovery plan or an incident response plan? Are you prepared? What would you do if you got to work and you’re truly staring at rubble, there’s nothing left, or maybe it’s a partial loss, it’s water, but you’re unable to operate?

That’s immediately where my mind goes when you read all this literature is, how many people will never reopen because the stats are against them if you do not have a working plan. It’s one of those situations where every second matters. If you can imagine that you’re in northern Alberta or you’re in and around Quebec and you have maybe one or two key competitors in your industry, and then now your business has burned, if you don’t get up and running as soon as possible, you’re losing market share by the second. And when it comes to coverage, I mean, if you’ve purchased properly, yes, they’re going to rebuild the building. You’re going to get a check for the inventory. You’re going to have business interruption that’s going to make you whole. But business interruption does not repair the damage of being closed. I mean, there’s some financial relief there, but the cost to acquire those customers, certainly if it’s contractual arrangements, what would you do if you couldn’t operate for nine months and what would you do to shorten that timeframe is immediately where my mind goes.

In a way, this is hypothetical, but frankly, the news coverage would tell us today it’s getting a whole lot more less hypothetical and more practical, more real. So what do you counsel people to do? What preparations can a homeowner make? What preparations can a business owner make in advance? You can’t predict where the fire’s going to be, but can you actually take some steps? What do you recommend to people when they say, “How do I go about this?”

Yeah, so there’s quite a bit we can do. It’s dependent on the size of the organization. I mean, we’ve got documents as simple as a disaster checklist that are one or two pages long. We’ve got e-function checklists that you can identify two or three e-functions that need to be restored, or if you realize there’s seven, 10, whatever, you can keep using the form. But we’ve got as simple as one-pagers that will get you thinking of the right framework or at least the basics of what you could do if you had a loss. And then from there, we’ve got everything from very, very broad to very, very specific incident response plans. We even have developed a guide on … So it’s a guide that goes with the disaster recovery plan, and the guide is just as large as the plan itself because the guide walks you through what should be in your plan, who should be involved in your plan, and then how would you fill out the actual disaster recovery plan.

So that would be the most involved situation, but it covers every single function, every core function of the business. It covers multiple types of disaster, but it gives everyone a role. The reason why you would do that is it gives you a really good idea that if worst case scenario, you would know, you could be up and running in X or these are the core functions that we could do from anywhere. Now, COVID has taught the world a lot around pivoting and adapting and what you can take home with you and how you can still run a business. I think COVID really has made this task a lot easier because it forced everyone to change the way they think about how business is done, how work flows. And I think if you put in the time now, in the event of a major loss, again, it allows you to prep, plan and then mitigate the long-term damage of being closed.

I’m wondering too, let’s say you do that, you put that plan in place, who do you share that with? Should the staff know about it? Is this something you want to have in your file so you can talk to insurance companies about, “Hey, look at the quality of this company.” They’ve got all of these plans in place and they won’t mitigate damage or prevent a forest fire or something like that, a catastrophe. But look, this is just an indication of how they conduct themselves. Am I on the right track with some of those suggestions?

Yeah, absolutely. Certainly as the bar raises, as the organization is larger, so when we talk about larger, I think about property schedules, meaning just more overall value, bigger buildings, more stuff in those buildings. I mean, there’s always a concern, especially if you’re in an area prone to fire, if you’re in an area prone to any type of flooding, and certainly if you’re in BC along a fault line and there’s a concern for earthquakes, it allows us to lobby on behalf of our clients and say, “They understand that this could be a $40 million loss. They’ve taken the proper steps to plan for this in advance, and they can predict and mitigate up to X damage.” Depending on the type of business, so big manufacturing as an example, a lot of revenue, a lot of people, the business interruption plain alone can get out of hand, which we can touch on a little later.

Yeah, we’ve got to take a little break and I do want to come back to that because I think we’re into something here that business people can really put their … It’s tangible to them. They can put their hands around this. You’re listening to Colin Rook, the Commercial Risk Reduction Specialist with Butler Byers. I’m Paul Martin. You’re listening to Risky Business. We’ll be back after this short break.

Welcome back to Risky Business Commercial Insurance with Butler Byers. Paul Martin here, and joining me, Colin Rook, the Commercial Risk Reduction Specialist with Butler Byers. Before the break, we were talking about basically that line that you use a lot about demonstrating to an insurance company that you’re best in class as a potential risk, and insurers like that. They will look upon you more favourably than your competitor or the business down the street. And at a time when natural disasters are starting to become big time headline generators, again this is going to get more important in the day-to-day life of those of us who are in business.

Yeah. We’ve talked about the idea of capacity, just back to the insurance market and why tell the story and what we’re sharing, but we’ve talked about capacity on this show, and that means the dollars that insurance companies are prepared to commit either to a certain line of business or just business overall. But you hear capacity all the time. That would be all of my earthquake capacity, all of my flood capacity. So when capacity is scarce, and that’s the dollars that insurance companies are prepared to deploy, you really look to, okay, sell me on it.

I’m an underwriter. I think I’m staring at a potential for a major loss. Explain to me why you’re able to mitigate that better than anyone else in your field. And that’s where we walk through, well, they have a business continuity plan in place. It’s reviewed quarterly. They have every manager, every staff sign off, read through. Everyone knows their role, and they know worst case scenario, it would take X amount of time to be fully operational. Now, if you have a building and you’ve got $40 million worth of building equipment stock insured, so company A and then company B has the same 40 million, and we’re both faced with the same total loss, you think, well, 40 million is 40 million, and why would the plan help in any way to an insurance company if everything has turned to rubble?

Well, you get into business interruption claims where they are paying ongoing expenses, and depending on what form you buy and the coverage available, it could be up to two years of lost profit while they are desperately hoping you get back to operational, and having a plan can dramatically reduce or even eliminate a lot of those costs to the insurer, or sorry, insurance company if you have a plan and if you can show pending a disaster, we could be up and running in a few days and we may not need this coverage at all, versus we have absolutely no plan. We have no idea how long it would take. We don’t know how much business interruption we need. It would be an awful lot. We’ve got specialized equipment that could take up to 17 months to get back to us. So it’s the little things that turn the same claim into a huge number that could have been mitigated.

One of the key themes that we always talk about in this program is managing risk. I’m just wondering if in this conversation, as we look at this, sometimes if it’s natural disasters, you can’t manage that risk, but you can prepare for it. We talk about step-by-step plans. You’ve already alluded to the guides that you have available. You actually have a fair bit of information and resources available to businesses if they just want to give you a call. You’ll pass that on to them and help them prepare. But once I’ve got a plan prepared, who do I share it with? Is there any merit … For example, I mean obviously I’ll give it to you as my broker, but do I give it to my staff? Do I give it to customers? Do I give it to suppliers? I mean, what do I do with this thing?

Yeah, so that’s the beauty of the work that we put in. In the implementation, the planning guide, it walks you through who should see this. This section, everyone. These sections, just management. This is the section that would go to third party suppliers. This would go to other vendors. So it does walk you through. We wouldn’t share the whole plan to the insurance company because they don’t need to know that Dave is going to meet with Cindy at Tim Horton’s for a coffee, but what we share is the meat and potatoes, how long, how much, where they would go and why.

When you’re talking about disaster recovery planning, it also sparks a lot of very good conversations like if the building were to burn to the ground, would you rebuild at all? Would you rebuild here? Would you rebuild the same building, larger building, smaller building, different material? That’s part of the planning stage, and that also impacts the type of coverage you may want to buy. So we learn a ton from those conversations about the future of the company and then how to properly insure our clients when we have these conversations about what they would do in the event of a major loss.

I guess just before, we’ve got maybe a minute or two left before we run out of time here today, so if we could just wind this up with what guidance do you give to those who are listening and to us today to reach out to you? I am assuming you will encourage them to give us a call, ask us some questions. If I am dialing you up, what should I expect or what should I be asking you?

Yeah, I mean, you could reach out and then say, “Look, I’ve got some questions about disaster recovery planning or business continuity planning.” If you’re a small organization, you don’t need the 55 pager. We won’t provide the 55 pager. I mean, there is a process you’ll go through and we’ll only give you what you can truly benefit from. So that’s why I say we’ve got different types of incident response plans, and everything from we can build out a grouping of policies and one-pagers that could formulate your plan. We have a simple 3- page plan for the types of businesses that don’t really need a ton. And they could be large. It would be fairly simple to move a group of consultants somewhere in Saskatoon or anywhere else in the province where there’s available space. So it doesn’t have to be that involved, but we’ll get you something, but it allows you to plan.

And then just skipping ahead to a future show, I’d like to have an HR specialist that’s going to talk about the people plan. What do you do with your people? What is your role as an employer? And then what does everyone do about work in the event of a major loss?

Colin, as always, the time goes by so quickly and the insights are so useful. You’ve been listening to Colin Rook, the Commercial Risk Reduction Specialist with Butler Byers. This is Paul Martin. Thank you for joining us. This is Risky Business. We’ll talk to you next time.